The IMF predicts that in 2013 Costa Rica’s economic growth will surpass the world average. By playing host to numerous leading international corporations in the information and communication technology (TIC) sector, the country has placed itself at an advantage.
His father worked on a coffee plantation a few kilometres outside of San José yet in contrast, he has swapped the green fields for a computer screen. He works for one of the US multinationals that have set up headquarters in this Central American country. His role is to develop and improve wireless networks, work which he carries out in Costa Rica but which serves a worldwide purpose.
In his office his co-workers are both Costa Rican and natives of other nationalities who all form part of the renowned Silicon Valley of Costa Rica. The arrival of international corporations has served as a catalyst for the area. According to predictions made by the World Bank, the Costa Rican economy is set to experience a growth of 4%, a figure which exceeds the Latin American average.
The Prisma talked to Luciano Ciravegna, author of “Promoting Silicon Valleys in Latin America: Lessons from Costa Rica” and professor at the University of London.
Ciravegna reveals Costa Rica’s keys to success in becoming an operations centre for large multinational leaders in the information technology sector.
What is the Silicone Valley effect?
It is the heart of the world’s electronics and software industry, located in the North American state of California. It is renowned for its mass of large and small scale businesses and for its entrepreneurship. It is where many of the leading multinationals in this sector were created. Financially speaking, this cluster of corporations has fuelled the whole of the Californian and US economy.
For this reason, many Latin American countries are looking to follow suit and the majority begin by promoting policies which facilitate the installation of foreign companies specialising in technology.
What are the characteristics of the Costa Rican Silicone Valley?
On a global scale, production levels are not as great as China, Taiwan or South Korea. However, per capita, Costa Rica is Latin America’s primary producer and exporter of electronic and software products. Furthermore, thanks to successful policies for attracting foreign investment, 10% of the workforce (higher than the US average) is employed in this high-tech industry.
Its success is linked to the fact that Costa Rica is seen as a pacific country and has a skilled workforce. Costa Rica is now reaping the rewards of several years of state investment in state education.
What strategy was employed in order for Costa Rica to become an operations centre for large multinationals?
It is important to highlight that success has been achieved in three sectors which are all interrelated; tourism, the software industry and the manufacturing of medical apparatus.
Everything originated from the idea of developing a country brand in order to attract tourism which drew the attention of many American businesses. Despite lower wages, many employees prefer to work in this Central American country than in other parts of the world. Its close proximity to the US, agreeable climate and political stability are but a few of its appealing characteristics. The country has a multinational atmosphere and is home to various immigrant professionals from countries such as Argentina, Venezuela, US, Israel…
How has Costa Rica promoted its country brand?
Let’s just say it has been a long, gradual process. Costa Rica made a significant effort to promote its name amongst potential investors. It has invested a lot in this.. During the 80’s it opened an office in New York and gradually opened up others throughout the United States.
The aim of these offices is to promote the positive aspects of visiting the country. The arrival of the first tourists and mouth to mouth promotion strengthened the area’s reputation. Other Latin American territories have tried to do the same but have encountered difficulties in establishing an image capable of overcoming the notions of instability linked to drug trafficking.
Has the Silicone Valley effect had any impact on other areas in Latin America?
Yes and it has had a significant impact on the economic growth of several countries. Latin America mainly specializes in the services and software sector. These are clean industries as they cause no pollution. The majority of production and manufacturing is carried out in Asia.
The greatest impact is seen in the workforce that this industry employs with qualified and generally well paid jobs.
The biggest advantage is that national industry is benefitted. Brazil began offering its services to the US and the EU but it now supplies the national market. It is important that these countries are not just grain and soy bean producers but that they also invest in high-tech industries.
Is it possible that this current growth might become stagnant or disappear?
I do not believe that production could disappear completely, partly because it is an industry which is constantly being up-dated, each year people are buying new mobile phone models.
Over the last few years innovation has increased resulting in the need to provide customers with the services and electronic components that they demand. Latin America’s challenge is to continue to develop increasingly sophisticated services. Production costs in South America are more expensive than in Asia which means that the country must invest in levels of sophistication.
Is Silicon Valley just a synonym for economic impact?
It has introduced a significant level of education into society, we are dealing with specialized professions. There are individuals who at the age of 16 are already programmers and at 25 years old are sales managers. Compared to my country, Italy, there are a significantly higher number of skilled professionals in these sectors and with large salaries that would be satisfactory for even young Europeans.
Are there many British companies in Costa Rica’s Silicon Valley?
No. The majority are from the US and some from India but there are no British companies in this sector. This is a reflection of the poor economic relationship that exists between the UK and Latin America.
Which country is most likely to repeat Costa Rica’s boom?
Undoubtedly, Uruguay has the most similar characteristics. It has a small and relatively open economy. The population is well educated and it is already home to a significant cluster of technological corporations. This country represents competition for Costa Rica. Chile is another option thanks to its stable economy and success in attracting investors and entrepreneurs through favourable tax and immigration laws.
By Ramón Alabau, The Prisma